A comprehensive company credit check is crucial for understanding and mitigating credit risk. Whether you’re looking to conduct an internal check or examine a company you’re planning on working with, doing a company credit check can add a necessary layer of security to your business dealings.
Knowing a company's creditworthiness and payment history can help you decide whether to extend credit or establish business partnerships.
This blogpost will guide you through the process of conducting a comprehensive credit check, covering key factors to consider and resources to utilise. We’ll talk about the following.
- What is credit risk and risk management?
- How often should you conduct a company credit check?
- How to conduct a thorough company credit check
What is credit risk?
Credit risk is the possibility of suffering a loss in the event that a borrower defaults on their debt. Whether it's a government debt, a company bond, or a personal loan, lending operations will always carry some risk.
What is risk management?
Risk management is important if you’re looking to reduce your credit risk. Part of the process is evaluating whether or not your borrower will be able to repay a loan. You can evaluate a borrower’s creditworthiness based on a number of characteristics, such as credit history and cash flow.
When it comes to assessing and managing your own risk exposure, you need to look inwardly to protect your financial assets from different types of risk. It is a case of identifying likely scenarios and taking steps to mitigate these risks wherever possible. Fraud detection tools, such as Vigilance™, help to add an additional layer to your risk management process. Using multiple critical triggers and data points, Vigilance is able to thoroughly assess and validate business information.
How often should you conduct a company credit check?
Conducting regular credit checks is essential for the survival of any business. However, the exact frequency of these checks depends on a range of factors, including:
- Nature of your business
- Type and size of transaction
- Your company’s risk tolerance
As best practise, it is important to conduct a company credit check whenever you’re about to enter into a new business partnership or hand out a loan as this is when credit risk is highest. Always look for the following key insights when conducting a company credit check:
- Overall current financial health
- Potential future changes in financial health that may directly impact your company
- Signs of financial distress
Financial distress may be a vague term on its own. Scores such as the H-Score® and TextScore® show you tangible metrics associated with financial distress to help you make sense of distress levels more easily.
How to conduct a thorough company credit check
1. Gather important information
Make sure to have the following key data on file before you start your credit check:
- Name of the company
- Director information and history
- Industry: this is important to identify market conditions and risk
2. Know what you’re looking for
Each company credit check will have its own requirements based on the kind of business you’re conducting and whether the check is internal or external. For most standard checks, however, look for the following fundamental pieces of information:
- Financial data: this will include profitability, total revenue, and cash flow, all essential for effective financial risk management.
- Ownership and management information: make sure to identify the people who own the company and manage operations as these people will be your key points of contact. This will also help ensure that company directors are not tied up in any ongoing legal disputes.
- Customer and supplier information: this will include major customers, suppliers, and payment history
- Market trends and regulations: this is to gauge the future prospects of the company and familiarise yourself with any regulatory concerns.
3. Utilise a business information provider
Conducting a credit check on your own can be risky, especially when you’re not experienced at it. In this case, leveraging a business information provider’s services is the way to go.
Company Watch is a one-stop shop for thorough company credit checks. We provide credit risk scores that are both comprehensive and easy to explain.
In addition to this, Vigilance™ allows you to check for potentially fraudulent companies, while also offering detailed data on directors and execs within the company you’re looking at.
We provide this data by scouring hundreds of thousands of data points across publicly available online sources as well as sources that are not publicly available. This makes for an incredibly thorough and foolproof company credit check.
With Company Watch credit reports, you’ll have the information you need to make informed decisions and protect your company’s finances. This is incredibly important in times of social and economic uncertainty, as having a holistic business information provider can help you stay ahead of the curve and avoid unforeseen financial losses.
Key takeaways
- How to manage your risk will depend largely on the type of risk you’re looking to mitigate, as well as current market trends that dictate how strong the risk actually is.
- You should conduct a company credit check every time you are about to enter into a new transaction or business partnership.
- To conduct a thorough check, make sure to have key information on hand and always use a business information provider for accurate and reliable data.
